GOOD EATS

What Regulates What We Eat & Drink

Happy end of L.A. Tech Week everyone! Most people celebrate these weeks starting…I celebrate the ending. OOOPS. I’m not a huge proponent of tech weeks for our ecosystem, but alas I went ahead and hosted about 60 of our friends over for a dinner that was absolutely wonderful (but also exhausting!) I’m a big fan of hosting intimate dinners and wine tastings at our home as a lovely way to get to know LPs and founders as we get Vol. 1 Ventures off the ground and this dinner was no exception. I pretty much only went to events my friends were hosting this past week so having everyone I wanted to see in one place, without having to leave my house, was fantastic! Thanks everyone for coming and eatin’ muh pasta and drankin’ muh fancy wine. I needed some extra room in our house so high fives all around!

Now, before we continue to discuss food and beverages a lil’ more than I normally do I gotta say…I hope y’all aren’t hungry. If you are, immediately grab something now before we get into yapping about all the delicious things we can get in our bellies.

Okay, so you’re going to read this a lot today…but I love food and beverages. I love shopping IRL at the grocery store. I love seeing new products packaged in bright colors on the shelves. I love smelling the fresh produce when that mister hits. I LOVE ALL OF IT! I love grocery stores so much I have watched every episode of multiple game shows that take place in grocery stores. I might have a problem. (I’m not joking. I once spent three hours at the grocery store. R.I.P. County Market in Vienna, West Virginia.)

However, now that I am investing pretty regularly in the food & beverage space I don’t have to leave my inbox and social media for cool browsing. Yay!!!!! Ironically, I used to randomly get pitched phenomenal CPG startups in the food and beverage space, only for me to respond with “I don’t invest in CPG.” But that's not entirely accurate—when reviewing my portfolio this year, I realized some of my best-performing investments have been in CPG, and more specifically, CPG food and beverage. Just goes to show you that sometimes we don’t even know ourselves that well as investors (I also have a portfolio of ~200 angel investments, so it’s hard to remember them all over the years.)

I’ve recently been super excited about some of the companies coming out with new and novel tastes and products—from the unique and comforting granola butter of Oat Haus to the crisp and refreshing flavors of Olipop. I want all of it! I have even started drinking coffee on a regular basis thanks to Couplet Coffee. (Not to mention my home essentially being a Couplet Coffee hype house…) All of these companies are amazing and I’m so lucky that I got these cool founders and teams to take a cent from me.

I’m trying to be a better steward of food & beverage investing and as a part of that, I want to create more content for the sector. I just did a second anti-portfolio video on Olipop versus Poppi, if you wanna see more about my pretty subjective reasons for why I invest in startups within this space. (Spoiler Alert: It must taste good.) I think if more investors understood the opportunities, actual products/ingredients, and founding teams, we could see some really interesting investments. And oddly I always get asked for fancy drank content, so I may start a side hustle just reviewing drinks in fancy packaging that are sold at Erewhon. Yep. I’m now that basic white girl.

Now Onto the Good Stuff…

The one thing that I continue to be shaken by as an investor in the food & beverage space is the lack of understanding of what rules and regulations take precedence before any item can get into your belly. (I realize I should stop being surprised by how little people know, but that is something I will spend a lot of time with my therapist on.) As you may (or may not) expect, the food and beverage industry is an intricate and globally interconnected network that feeds billions of people daily. It encompasses everything from the non-obvious agricultural production of farms to food processing, from distribution to retail, and finally to the consumers' hands. (I will just say ‘you’re welcome’ on behalf of farmers everywhere now.) Maybe it’s because I’m a farmer or maybe it’s because I think about eating and drinking waaaay too much…but I think a lot about what it takes for food to get from manufacturers to grocery store shelves. This process is faaaaaaar from simple and is governed by a spiderweb of rules and regulations designed to ensure safety, efficacy, and transparency in the market. Of all the regulations we have in this world, these may be the most important. Our food supply needs to be protected with every fiber of our being or we are all screwed.

Seriously, though. The importance of these rules and regulations cannot be understated. They serve critical roles in protecting public health, providing consumers with important information, and maintaining fair practices in the food trade. They create a framework within which all food and beverage companies must operate, guiding everything from the ingredients they can use to the information they must provide on their labels.

For the average reader and consumer, it’s important to know these regulations—for any food and beverage company hoping to bring its product to market, it’s absolutely critical. I always grill companies in this sector when they pitch me. One failure in this area could have fatal impacts and this knowledge is key to our health and well-being and has been on the back burner for too long.

We’ll focus on the United States this week and alas I won’t really touch foods with cannabis or alcoholic beverages…yet. Those two things add 10x as many regulatory layers and we will get there eventually.

The Food and Drug Administration (FDA) and the United States Department of Agriculture (USDA) are the primary regulatory authorities in charge of food and beverages. There are also secondary regulations at the state, city, county, etc. levels. This complicated regulatory process doesn't stop at governmental regulation. When it comes to getting a product on the grocery store shelf, individual retailers may also have their own sets of requirements and standards that must be met. Shout out to the stores, farmers’ markets, and grocers that are taking consumer safety and food security to new levels!

Hello, FDA Our Old Friend

Thankfully for foodies, the United States boasts one of the most comprehensive and stringent food safety regulatory systems in the world. Both the FDA and the USDA have distinct, yet sometimes overlapping, mandates concerning different types of food products.

The FDA’s Food Code oversees all domestic and imported food sold in interstate commerce, including shell eggs, bottled water, wine beverages with less than 7 percent alcohol, and food additives. This agency's responsibilities encompass food labeling, food safety, and the enforcement of food purity laws. They publish and uphold rules such as the Current Good Manufacturing Practices (CGMPs) which provide the minimum requirements that a food product manufacturer must meet to assure that their products are safe, wholesome, and unadulterated. (These standards are also used for pharmaceuticals as well in case you’re wondering or are new in these parts.)

The USDA, more specifically the Food Safety and Inspection Service (FSIS), regulates meat, poultry, and processed egg products to ensure they are safe, wholesome, and correctly labeled and packaged. The USDA maintains strict guidelines regarding the health of animals used for food, the processing and handling of animal products, and labeling standards for these products.

A little-known fact about me is that I worked for the Ohio Department of Agriculture and FSIS in college. As part of my jobs, I ended up becoming a certified inspector for meat, cheese, dairy, and poultry manufacturing lines for a major supermarket chain and dairy farms in Ohio’s Amish country. I can tell you first-hand that without FSIS, some folks would try just about anything to save a dime and almost kill us all in the process. I truly cannot unsee the nasty things I saw doing that job.

In 2011, the United States enacted the Food Safety Modernization Act (FSMA), the most sweeping reform of U.S. food safety laws in more than 70 years. The FSMA gives the FDA new regulatory authority and tools to ensure all food products are safe for consumption. The key elements of FSMA include preventive controls for human and animal food, import controls, and risk-based safety standards for fruit and vegetable production.

As I mentioned previously, in addition to these federal bodies, food and beverage businesses must adhere to state and local health department regulations. These agencies manage local food safety issues and conduct regular inspections of food retail establishments. They enforce food safety standards as per the FDA's Food Code, a model that assists food control jurisdictions at all levels of government by providing them with a scientifically sound technical and legal basis for regulating the retail and food service segment of the industry.

Finally, food and beverage companies must secure the necessary licenses and permits to operate. These may include a general business license, a food manufacturer license, a food dealer's permit, and potentially other permits depending on the specifics of the operation, such as a liquor license or a permit for operating a food business out of a home kitchen.

If you are interested in starting any kind of food or beverage company, you should do an exhaustive search of what is needed to legally get your product to market. Investors should also look for these licenses and inspection results in a potential portfolio company’s data room. If these aren’t present and a product is being put in the hands of consumers, it is an automatic pass for me.

Yes, navigating these rules can be complex, but understanding them is crucial for legal operation, maintaining a good reputation, and ultimately ensuring the safety of consumers. We all play a part in putting wholesome food in the hands of consumers so here the more you know is incredibly important.

What’s in a Name? Labeling Regulations As We Know It

We already touched on this briefly when discussing dairy products, but let’s talk about labeling with other products. Clear, accurate, and comprehensive labeling is a crucial aspect of food and beverage regulation. Consumers rely on product labels to make informed decisions about their purchases, making it essential for food and beverage manufacturers to comply with labeling regulations.

Nutrition labeling is a key element of this process. In the United States, the Nutrition Labeling and Education Act (NLEA) requires most foods to bear nutrition labeling and requires food labels that portray a nutrient content claim or a health claim to comply with specific requirements. These include the listing of essential nutrients, serving sizes, the number of servings per container, and nutrient values. Furthermore, the FDA regulates what claims can be made about food products, including Nutrient Content Claims, Health Claims, and Structure/Function Claims. For example, a product claiming to be "low-fat" must meet a specific definition established by the FDA. Not gonna lie - every, single time I saunter through Erewhon I wonder how many prebiotic claims are actually true so I can’t wait to see the next round of updates here.

Food allergies are a serious concern for many consumers. (One day I’ll tell y’all my long list of weird food allergies just for shits and giggles.) The Food Allergen Labeling and Consumer Protection Act (FALCPA) require food labels to identify in plain English if the product contains any of the eight major food allergens: milk, eggs, fish, shellfish, tree nuts, peanuts, wheat, and soybeans. No burying the lede is allowed here for very good reasons.

In recent years, consumers have shown an increased interest in the origins and contents of their food. As a result, regulations around specialty labels like Organic and Non-GMO have become more stringent. If a food or beverage company wants to label its product as Organic, it must meet the criteria set by the USDA's National Organic Program. Similarly, for a product to bear a Non-GMO label, it must meet the criteria of Non-GMO Project Verification or a similar certifying body. These terms used to be solely marketing terms, so seeing some real teeth around guiding definitions has been a great thing for consumers wishing to make certain choices for their nutritional needs.

Moreover, many states also have specific rules regarding the labeling of certain types of food. For example, some states have strict guidelines for labeling products as "local" or "artisan." This adds another layer of complexity to food labeling regulations, but it also offers opportunities for businesses to differentiate their products in the market.

Clearly, food and beverage companies must pay careful attention to their product labeling. Not only is accurate labeling required by law, but it also plays a critical role in how consumers perceive and choose their products. Labeling regulations are an essential aspect of getting a food or beverage product onto grocery store shelves.

Let’s Make it Safe: Food Production and Safety Standards

I think we can all agree (hopefully?) that ensuring the safety and quality of food and beverage products is of utmost importance, both for the well-being of consumers and for the success and reputation of the company. It is not enough to simply have a great-tasting product; it must also be produced and handled in a way that ensures its safety and quality at every step of the process. Again, this might seem pretty easy, but it in fact requires a looooot of regulatory oversight.

Good Manufacturing Practices (GMPs) are one of the first steps to ensure food safety. These practices are regulations set forth by the FDA that provide guidelines for necessary processes, procedures, and documentation to assure the product produced has the identity, strength, composition, quality, and purity it is represented to possess. GMPs cover all aspects of production, including raw material quality, facility cleanliness, employee hygiene, equipment maintenance, and record-keeping. I wish these were as simple as wash your hands and wear a food net…but no. I once saw a SOP handbook based on GMPs that was over 700 pages long. Just a bit of light reading ya know!

While GMPs provide a strong foundation for food safety, there are additional measures companies can be required to take to further ensure their products are safe. The Hazard Analysis Critical Control Points (HACCP) system is a process control system designed to identify and prevent microbial and other hazards in food production. The process includes identifying potential hazards associated with food production and defining critical control points in the process at which these hazards can be controlled or eliminated. Trust me nobody wants a finger in their cottage cheese at breakfast.

Building upon the HACCP system, the FDA established the Food Safety Plan: Hazard Analysis and Risk-Based Preventive Controls (HARPC) as part of FSMA regulations. HARPC includes the traditional principles of HACCP but imposes additional obligations, requiring manufacturers to evaluate the risk of previously unregulated hazards, including natural toxins, pesticides, drug residues, decomposition, parasites, allergens, and unapproved food and color additives. We very much like those things not in what we ingest.

Adherence to these practices is essential for food and beverage companies. Not only do these measures reduce the risk of a costly and potentially dangerous food recall, but they also increase overall efficiency, improve customer trust, and ensure regulatory compliance. (You might be noticing a trend here…) Maintaining high food production and safety standards is a crucial part of the journey toward getting a product onto the grocery store shelf.

But Wait, There’s More: Other Regulations You Might Not Know

In all honesty, I didn’t know where to stick these two regulations. So they got their very own section lol. These are the kinda regulations that miiiiight end up being an afterthought until enforcement comes a knockin’ so let’s gooooo…

Product Formulation Regulations: Food formulation regulations guide the ingredients and amounts of those ingredients that can be used in certain types of food. For example, the FDA defines what can be classified as "bread," "juice," or "ice cream." The FDA also oversees food additives, which must be approved for use and are subject to quantity restrictions based on the type of food. I’m currently drinking a drink that says 1% juice so thank you FDA for that information.

Packaging Regulations: Food packaging is regulated to ensure that it does not contaminate the food. The FDA regulates food packaging material under the Federal Food, Drug, and Cosmetic Act (FFDCA), ensuring that the materials used are safe and suitable for their intended use. There are specific guidelines for various types of packaging, including plastics, recycled materials, and coatings. Basically, don’t package your food or drink in formaldehyde. Cool?

Can I Bring This Cheese Home With Me? Import and Export Regulations

Whether a food and beverage company is sourcing ingredients from abroad or seeking to sell its products in international markets, understanding the regulations surrounding import and export is crucial, especially as we export more and more food products these days.

Exporting food and beverage products from the United States involves numerous considerations. (But of course, why would we want it to be easy?)These include ensuring the product meets the regulations of the destination country, understanding labeling requirements, and having a plan for handling any potential returns or refusals. The USDA and FDA provide guidance for exporters, and the Commerce Department’s Commercial Service can assist with understanding foreign market requirements. I would encourage folks to take a look if they are looking to grow their F&B company.

In contrast, importing food and beverage products to the United States involves strict oversight by the FDA, USDA, and U.S. Customs and Border Protection (CBP). Companies importing food are required to register with the FDA and may be required to comply with the Foreign Supplier Verification Programs (FSVP) rule, which requires importers to verify that food imported into the United States has been produced in a manner that meets applicable U.S. safety standards. If you’ve ever seen a CBP advertisement you know people try to bring the weirdest foods into the country. Don’t end up being the people in those ads.

The FDA and CBP also employ a Prior Notice System to track imports. Prior notice of imported food, including food for animals, must be submitted to the FDA before the food arrives in the U.S. If the food has not been properly declared, it may be refused entry into the U.S. That sounds like more paperwork and administrative burden so let’s avoid that as well.

Additionally, the Bioterrorism Act requires domestic and foreign facilities that manufacture, process, pack, or hold food for human or animal consumption in the U.S. to register with the FDA. This act gives the FDA a broad overview of the food supply chain, allowing for quick action if an issue arises. Our farm actually has requirements under this Act as well so you’d be surprised by the breadth of it’s reach.

Complying with import and export regulations not only allows for smooth operation and the avoidance of legal issues but also contributes to the safety of food and beverages for consumers. Though navigating these rules may seem daunting, but doing so is an integral part of operating a successful food and beverage business in today's global market.

The Don’t Be an Asshole Rules: Environmental and Ethical Considerations

In an era of heightened environmental and ethical awareness, food and beverage companies must consider more than just regulatory compliance. Today's consumers often make their purchasing decisions based on a company's environmental and ethical practices, making these considerations a crucial part of doing business. While not legally required, some of these considerations are almost as important.

Sustainability regulations are a key concern for some consumers. There is a growing push for companies to reduce their environmental impact, and many regulations are now reflecting this. For instance, the Environmental Protection Agency (EPA) in the United States enforces numerous regulations related to air and water pollution, waste management, and chemical usage. Companies may also choose to adhere to voluntary environmental standards, such as those related to organic farming or sustainable fisheries, to appeal to environmentally conscious consumers.

Animal welfare regulations are also a significant consideration, especially for companies that produce meat, dairy, or other animal products. The USDA and state agencies enforce laws related to the treatment of animals on farms. There are also numerous voluntary certifications related to animal welfare, such as the Certified Humane or Animal Welfare Approved labels. As someone who loves my animals more than anything else, I really struggle to understand people who mistreat animals. These people are my mortal enemies.

Companies must also consider the ethical implications of their supply chains. This can include ensuring fair trade and labor practices, avoiding products that contribute to deforestation or habitat destruction, and working to reduce food waste. Don’t be the asshole who doesn’t care about ethics in business. There is a special circle in hell for these people and it’s already pretty crowded.

While adhering to environmental and ethical guidelines can be challenging, it can also provide numerous benefits. Many consumers are willing to pay a premium for products that align with their values, and companies that prioritize these considerations can differentiate themselves in a crowded market. Furthermore, sustainable and ethical practices can lead to long-term cost savings and business resilience.

Grocery Store Requirements and Considerations

We’re finally near the finish line, aka the grocery store shelf, for all these cool food and beverages that I look forward to eating…

So once a food and beverage company has navigated the numerous regulations and considerations involved in producing a safe, quality product, there is still another hurdle to overcome: meeting the requirements of the grocery stores themselves. Dun dun dunnnnnn…

Grocery stores, especially larger chains (and Erewhon lol), often have their own set of standards and requirements that suppliers must meet. These may include specific packaging and labeling standards, supply chain transparency requirements, or even specific ethical or environmental standards. These requirements are often outlined in a vendor agreement or supplier manual.

Product liability insurance is often a prerequisite for doing business with major grocery chains. This type of insurance protects the company if a consumer becomes ill or injured as a result of their product. It's not uncommon for grocery chains to require their vendors to carry a certain amount of product liability insurance coverage. (FYI. If you’re building in this area make sure your insurance policies are included in your data room.)

Another crucial aspect is Universal Product Codes (UPCs). UPCs are the barcodes found on product packaging that identify the item and its manufacturer. In order to sell a product through most retail channels, it needs a unique UPC that can be scanned at the point of sale. This involves applying for a company prefix number from the GS1 US, the non-profit organization that issues UPCs. This process can take longer than expected so don’t learn this the hard way under duress.

Grocery stores also often require proof of food safety certification, such as HACCP or Safe Quality Food (SQF) certification. This is another way that retailers ensure the products they stock are safe and high-quality.

Finally, food and beverage companies must consider shelf life and storage requirements. Products with a longer shelf life are often more attractive to retailers because they reduce the risk of waste. Furthermore, products with special storage requirements (such as refrigeration or freezing) may be harder to place in some stores due to space constraints.

Well That Isn’t Great: Famous Food Recalls

Food recalls often occur when there's evidence to suggest that a food may cause consumers to become ill due to foodborne bacteria, foreign objects found in the food, or other potential hazards that are frankly, pretty gross. These recalls can be mandatory or company-led based on potential concerns. Either one is concerning and expensive for any size of company to deal with. Some well-known food recalls in history include:

1. Peanut Corporation of America (2008-2009): In one of the largest food recalls in history, Peanut Corporation of America was linked to a salmonella outbreak that caused 714 illnesses and nine deaths. It led to the recall of thousands of products containing peanuts.

2. Jack in the Box E. coli outbreak (1993): The fast-food chain Jack in the Box was linked to an E. coli outbreak after it served undercooked meat patties, causing more than 700 people to fall ill, many of whom were children, and four of whom died.

3. Spinach E. coli outbreak (2006): An E. coli outbreak traced back to fresh spinach from California led to the illness of 199 people across 26 states, leading to three deaths.

Over the years, there have been numerous high-profile cases where regulatory agencies took action against food and beverage companies due to violations of food safety regulations, false advertising, mislabeling, and other offenses. This can even include jail time for executives so don’t sleep on these rules if you’re in this sector. Here are some notable instances that truly have multi-layered consequences for companies and their executives:

1. Chipotle Mexican Grill (2015-2020): Chipotle was hit with multiple foodborne illness outbreaks, including E.coli, norovirus, and Salmonella, between 2015 and 2018, which sickened hundreds of customers across various states. These incidents led to a major investigation by the Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA). In 2020, Chipotle agreed to pay a $25 million fine to resolve criminal charges related to the outbreaks, marking the largest-ever fine in a food-safety case. As a big Chipotle fan this one breaks my heart. Sadface.

2. ConAgra (2007): The food giant ConAgra had to recall all peanut butter produced since 2004, under the Peter Pan brand and some under the Walmart brand Great Value, due to a Salmonella outbreak that caused more than 600 cases of illness across 47 states. The company later agreed to pay a $11.2 million penalty, including the largest criminal fine ever in a U.S. food safety case at that time.

3. Nestlé (2008): Nestlé had a significant issue with one of their cookie dough products, which was linked to an E.coli outbreak in 28 states, causing at least 70 people to become ill. The FDA and CDC investigated the incident over multiple years, and Nestlé had to recall the product and shelve others in development, causing significant damage to their brand image and consumer trust.

4. Blue Bell Creameries (2015): The ice cream manufacturer had to shut down production and issue a recall of all its products after an outbreak of listeriosis was linked to their ice cream, causing ten confirmed cases and three deaths. After a thorough investigation by the FDA, Blue Bell was fined and had to agree to expensive enhanced regulatory oversight as a condition of resuming production.

5. Peanut Corporation of America (2008-2009): We already mentioned this case, but in one of the most severe cases of criminal negligence, the company knowingly shipped products that had tested positive for Salmonella. The incident led to one of the largest product recalls in U.S. history and resulted in the company's bankruptcy. The CEO was sentenced to 28 years in prison, the harshest punishment ever for a producer in a foodborne illness outbreak.

Okay, yeah these are gross. Do better. Don’t be these companies folks.

Specific Regulations for Certain Types of Food (That Aren’t My Beloved Dairy Products)

Certain types of food have specific regulations based on their production process and potential risks. For example:

1. Meat and Poultry: The USDA’s Food Safety and Inspection Service (FSIS) regulates the production of meat and poultry, ensuring that it's correctly labeled, wholesome, and safe to eat. This includes regulations on how animals are raised, slaughtered, and processed.

2. Dairy: The FDA oversees dairy products, which are subject to pasteurization requirements to ensure safety. The FDA also regulates labeling requirements for milk and milk products.

3. Seafood: The FDA and the National Oceanic and Atmospheric Administration (NOAA) oversee seafood. They have regulations on fishing practices, processing, and labeling.

So what we learned here today is food and drinks need to be extraordinarily safe to get into the food system in the United States. No reader of mine will get in trouble for skirting these regulations…hopefulllllllllly…

Hope everyone learned at least something and even if you aren’t involved in the food & beverage industry you should now be at least liiiittle bit smarter about what you’re eating and drinkin’ these days!

Cheers!

xoxo

Stevie